Minimum wage helps people and economy

By Liou You-syue 劉侑學

Whenever the Minimum Wage Review Committee holds a meeting, it triggers a debate between its supporters and opponents. Opponents believe that raising the minimum wage would inevitably force businesses to stop investing in Taiwan and relocate overseas. Some even believe the government will have to follow Singapore’s example and abolish the minimum wage altogether to help commerce survive in the competitive global market. Moreover, some say raising the minimum wage would reduce job opportunities and create unemployment among marginal workers and that the government may cause widespread harm despite its good intentions.

However, such views are erroneous. The government sets a minimum wage requirement to protect economically disadvantaged workers and to guarantee their right to a share in the fruits of economic growth. With the exception of the Middle East, minimum wages are a universally implemented policy with almost 90 percent of all nations making it law.

The drive to reinforce the minimum wage has not ceased despite the global economic downturn. Over the past decade, developed countries such as the UK, Ireland and Australia turned the concept into law. However, it is developing countries that have been the key driving force behind this trend. South Africa implemented a minimum wage in 2002 and China did so in 2004.

Given that the minimum wage has the power to stabilize real aggregate demand, many countries have continued to raise the minimum wage level despite the recent difficulties. For example, in Brazil — although its GDP dropped slightly in 2009 — the government still raised the minimum wage by 6 percent to maintain living standards and the purchasing power of low-income laborers. The UK, Japan, Russia, South Korea and the US also chose to raise their minimum wage during the global financial crisis and more recently, South Korea passed a resolution to raise the minimum wage by 6.1 percent in 2013, despite the European debt crisis.

The question of whether the minimum wage will have any unexpected effects on employment has long been debated. According to economics textbooks, the minimum wage could distort the job market and lower the demand for labor, causing higher unemployment. According to this line of reasoning, raising the minimum wage would harm the very groups that it is designed to protect.

However, this point is not backed up by empirical research and evaluation reports provide evidence to both support and oppose the argument. In recent years, the view that the minimum wage acts as a positive influence on employment has gradually become dominant.

In 2006, more than 650 economists — including five Nobel Prize winners and six former presidents of the American Economic Association — jointly called on the US to raise its minimum wage, saying that it would improve the living conditions of low-income laborers and that it would not have the negative effects that critics suggest it would. The British Low Pay Commission also said that there is no evidence to show that the implementation of a minimum wage is significantly harmful to either the economy or employment.

The implementation of a minimum wage is not just a prevailing trend, it is also a recognized policy tool to effectively protect low-income workers and narrow the wealth gap. For the sake of economic growth and fairness, the government should take action to maintain a healthy consumption level among low-income workers and boost real aggregate demand.